Bob Knakal, the Head of JLL’s New York Private Capital Group, joined us for an interview. We discussed his background, the evolution of the brokerage industry, and the current market environment.
Daily Beat: Can you please share your background?
Bob Knakal: When I was a freshman at Wharton, I wanted to be the next Gordon Gekko. Over spring break, I returned back home to Northern Jersey and started looking for a summer job.
I began dropping off my resume at commercial banks and investment banks. When I came out of a Paine Webber office, I saw Coldwell Banker (CB) across the hall. I thought it was a bank, so I gave them my resume.
Once I learned it was a real estate company, I almost didn’t go to the interview, but they were the only ones hiring college students for the summer.
I took the job, and loved it from day one. After two summers doing market research, I got my salesperson’s license and worked on the industrial leasing team.
Daily Beat: Where did you work upon graduation?
Bob Knakal: When I got out of school in 1984, I started with CB in Manhattan and met Paul Massey. On my first day on the job, my bosses told me to follow him around – he had also just got into sales.
We quickly decided to work together and split everything 50-50. That was the start of a 30-year partnership.
I got into the business very serendipitously, but I’m happy that I did because I think it’s the greatest business in the world. I’ve now been brokering the sale of investment properties in New York City for 39 years.
Daily Beat: Why do you think it’s the best business out there?
Bob Knakal: Commercial brokerage is like mental chess. You’re dealing with psychology, salesmanship, persuasion, and human tendencies. It’s a complete meritocracy.
I also value being able to do something different every day, having full control over my time, and meeting interesting people. It’s a fantastic business. I love everything about it.
Daily Beat: How have you seen the brokerage business evolve since you started? The advent of technology and the proliferation of data has obviously been a game changer.
Bob Knakal: The changes have been profound. Going back to 1984, there was no cell phone, computer, or even fax machine on your desk. You carried a roll of quarters in your pocket to make phone calls from the street when you were out showing buildings.
Brokers wrote notes down in a day-timer keeper, which we kept in our pocket. It was a very different world. Technology has definitely made brokers more productive.
The availability of public information is also more widespread and transparent now than ever before.
Back in the old days, we had the blue owners’ book, and that information was about 50% accurate. Now, there are services that even provide cell phone numbers.
Daily Beat: And I gather this is why you and Paul were so keen on the territory system.
Bob Knakal: When we started Massey Knakal, our territory system was one in which we dug into every single block and worked to connect with every owner on the block. If we couldn’t get in touch with the owner, we called the neighbor.
If that didn’t work, we’d stay out front, wait for the mailman to show up, and see who the mail was being delivered to at the building.
In an age when publicly available information was only about half-accurate, our databases were probably 99% accurate. That gave us a tremendous competitive advantage.
Daily Beat: How do you think brokers can differentiate themselves in the market nowadays? Providing basic data is no longer going to cut it.
Bob Knakal: While publicly available information is much more significant today, it’s not great quality. There’s no publicly available data source that’s comprehensive relative to the true ownership information and comparable sales.
Although the correct company might be listed as the owner, they may only own 1% of the deal. It’s important to understand the main equity partner and how the decision making process works.
Once that’s done, you need to come up with something constructive and interesting to share with the owner. That’s hard to do unless you have firsthand information about a particular relevant sale, including the revenue and expense information.
I sell a lot of development sites and most comparable sales data provided in that sector is highly inaccurate. Many transactions are not included because they appear to be typical small walk-up buildings and are classified that way. We call the buyers to better understand the intended-use and intricacies of the deal.
Perhaps it’s eligible for some bonuses or the seller had purchased inclusionary housing rights. You might also find that he had to pay $10 million to buy a couple of tenants out or pay for an easement. That will not be reflected in the data.
A good broker adds value and differentiates themselves by demonstrating granular knowledge. Articulating why your data is different and how it can help your client is key.
Daily Beat: Are you still cold calling?
Bob Knakal: I cold call every day. My goal is to speak to at least 50 property owners every week. During the pandemic, I was actually a lot more productive working at home and got to over 100.
Cold calling is the gasoline that drives the brokerage engine. If you’re not prospecting, you’re not putting anything into the front of the pipeline. I love making calls.
If you’ve been a successful broker for a long time, you could rest on your laurels and wait for deals to come in; however, proactively seeking out opportunities is the best way to stay at the highest level.
Daily Beat: Once you become more well-known within the industry and have prior business interactions with many owners, picking up the phone is suddenly not as cold.
Bob Knakal: Yes. I think that’s been an advantage for me. Back before email started to become popular, we were sending out 3 million pieces of hard mail every year. All that mail had my name on it. People still remember getting all that mail from Massey Knakal.
The calls are not really as cold as you would think, but I still call people that I’ve never spoken to before and enjoy that. Most of the people that I’m calling are people that I’ve done business with, met before or at least spoken to many times before.
Daily Beat: And how many dials are you expecting from brokers on your team every day?
Bob Knakal: A good goal for everyone is to try to get 50 connections a week. If you’ve been around a while and folks know you, you could probably do that in as little as 100 dials. But it could take you 300 or 400 dials to get 50 connections.
I also think it’s important to differentiate when you’re making those dials. Between 10:00am and 12:00am and between 2:00pm to 5:00pm are the highest probability times to get people to pick up. I’ve had a very good success rate calling people on the weekends since the pandemic too.
Daily Beat: New York City is a unique and competitive market. How do you look at the big picture as an investment sales broker?
Bob Knakal: If you think about the nature of the New York market, there are about 165,000 investment properties in the four boroughs, not including Staten Island. Of those 165,000 properties, there are about 250,000 owners. Some people own 100 buildings; others own one, but there could be 30 partners in that building.
If you think about that group of 250,000 owners, it’s impossible to call all of them regularly, so to a large degree, it’s not who you know, it’s who knows you. I was very skeptical about social media, but have been very pleased with its effectiveness and reach to help achieve this objective.
Networking and meeting people is key. The more people that know you and the more people that like you, the more business you’re going to do. That’s a full-time job.
My broker coach Rod Santomassimo refers to it as a market presence. You want to be out there and be on top of mind for people when they decide that they need to do something in the market.
The average turnover rate within Manhattan is 2.6% of the total stock of buildings over the last 40 years. In other words, on average, people own a building for 40 years before they sell it, so they’re not always in the market to do something.
As a broker, your job is to be front of mind when they do decide to make a move. You want to have that market presence so they think of you at those times.
Daily Beat: How long does it take for pricing shifts to be reflected in the market?
Bob Knakal: Even comparable sale data is stale in a way. If a property goes through the transfers today, it’s probably under contract for anywhere between two to four months. It took a month to negotiate the contract, and the deal was made two or three weeks before that.
You’re talking about information that might already be five or six months old.
For instance, just in this most recent period, you saw a significant shift last September when the Fed’s rate hikes started impacting the lending market in a very tangible way. The market shifted at that point in time.
Since September, New York land market values went down by 20 to 25%. Many comparable sales from before September don’t have that much credibility when we’re doing a valuation on a new site.
Daily Beat: What are you seeing insofar as the number of bids you’re getting on a property today versus before then?
Bob Knakal: The number of bids is certainly not nearly as robust as it was, but there’s still a number of people that are very active with certain sectors. Although multi-family cap rates have increased with rate hikes, the depth of demand is staggering and shocking really given the political headwinds in that space.
If you look at the land prices, the market has reset. The condo land market is still very robust with strong activity at this lower price point, but the rental land market has completely evaporated because of the lack of 421-a.
There’s a huge air bubble building in that pipeline. If you look at the retail sector, I think it is a bright spot.
Within the office sector, everyone is still trying to figure out what’s going to happen to aggregate office demand –– it remains very opaque.
Daily Beat: How would you explain the condo land market staying strong in light of macro-economic headwinds and the stock market?
Bob Knakal: Let’s look at the perspective of developers from a bird’s-eye view. Every single one in the country had optimism injected into their DNA when they were born. Developers need to be confident and optimistic. If you ask 100 developers if the market will be in a better or worse place three years from now, all of them will likely say better.
Daily Beat: What are you seeing in the rent-stabilized market in terms of cap rates? There are obviously differences in sub-markets and it’s hard to paint a broad brush, but overall what are you seeing?
Bob Knakal: Lending rates on multi-family assets today are in the 5.75% to 6% range. There’s no reason why cap rates should be below lending rates unless there’s immediate upside potential in an asset.
We’ve had two distinct periods in the history of New York City over the past 40 years where there’s been negative leverage. The mid 1980’s and then again between 2004-2007.
The first negative leverage period was created by a co-op conversion craze, and the latter by condo conversion. Both of those optional exits don’t exist today based on the rent law changes in 2019.
Daily Beat: With increased expenses and the Rent Guidelines Board structured the way it is, that’s a tough market unless the Supreme Court overturns the rent laws or we see significant unlikely political change.
Bob Knakal: Yes. Since the government is constricting supply with poor policy, I think free-market rents are going to go up maybe 10 or 15%. Our policymakers fail to understand that increasing supply can solve so many of our housing issues.
Daily Beat: What are your thoughts on refinancing risks within the rent-stabilized market? There’s distress out there.
Bob Knakal: It’s the biggest obstacle facing property owners today. The overwhelming majority of refinancings are going to require cash-in, and an overwhelming number of owners are reluctant to put fresh capital into old buildings to hold onto them. This will lead to an increased number of properties for sale.
*The interview has been edited and condensed for clarity.